Bitcoin going mainstream? Exchange approved to operate as a bank

Announcement could pave the way for deposit insurance, debit card.

Bitcoin Central, a Bitcoin exchange that is popular in the eurozone, says it has secured approval from regulators to operate as a bank under French law. The announcement could be another sign of the cryptocurrency's growing legitimacy.

The news was announced in a Thursday post on the Bitcoin forums. A representative for Paymium, the French company that runs Bitcoin Central, said the firm had partnered with the French payment processor Aqoba and the French bank Credit Mutuel to create a Bitcoin-based payment service. Users will be able to deposit funds in either euros or bitcoins, and to easily convert between the two.

Approval by the French authorities has several key advantages, according to Paymium. Euro-denominated funds will be insured by the Garantie des dépôts, the French equivalent to the US FDIC. The accounts will also be integrated with the French banking system, so users can have their paychecks automatically deposited into their accounts and converted to bitcoins. And Paymium hopes to roll out a debit card that will allow users to spend their bitcoins directly at traditional retail outlets.

It remains to be seen whether Paymium's new business partners will still be enthusiastic about the relationship once the system is up and running. The pseudonymous design of the Bitcoin network makes it inherently difficult to detect and prevent fraudulent transactions. And the irreversibility of Bitcoin transactions makes it hard to deal with fraud after the fact.

Earlier this year, the US-based Bitcoin exchange Tradehill was forced out of business by a dispute over fraudulent payments with the payment processor Dwolla. Users would transfer dollars to Tradehill, convert them to bitcoins, and then use "chargebacks" to get their dollars back. Dwolla blamed Tradehill for these fraudulent transactions, and Tradehill says the company withheld more than $160,000 from it as a result, contributing to Tradehill's bankruptcy.

It's a virtual certainty that Paymium's service will be targeted by fraudsters using similar tactics. How it handles those problems will be an important factor in the venture's success or failure.

Just like paper money exchanged in person, if there is no receipt, you cannot dispute transactions without reliable testimony about the assumed contract.

The only people making out here are the money-changers, the banks. Apparently, creating a new monopoly money is perfectly OK as long as it promotes fruitful economic activity, and that it can tolerate someone skimming off the top for converting it.

Have they covered the topic of sales tax on items purchased using bitcoins? I think it would be difficult to report, and easy to hide ... unless those transactions were being reported to your bank, then they are the ones responsible for maintaining evidence against you.

Bitcoins are not declared by a government to be legal tenderBitcoins are not convertible by law to other thingBitcoins are not fixed in value in terms of an objective standardBitcoins are without intrinsic value.

However, bitcoins do have value, because they can be exchanged for dollars or euros on various exchanges.They only have value because people assign value to them (on the exchanges), and because companies will accept them as payment.

The problem with this is that the value is very volatile, far more so than gold or dollars (for example).

European anti-money laundering rules require banks to follow strict procedures in case of certain operations (e.g. large cash deposits, etc). If this exchange is to be regulated as a bank, it will have to comply with these rules. And they have to keep accurate records of their clients and operations, which can be summoned by a court. I wonder how this ties with the anonymous nature of bitcoins...

Expect a beatdown. This wouldn't be stood for, don't seeing this going on for long.

Beatdown by who?The French authorities won't care, anyone who deposits bitcoins will have a bank account with the bank.And will therefore have shown proof of name and address.And will therefore be able to be sued for fraud if this occurs.

Once you connect your bitcoins to a bank account you are no longer anonymous.

European anti-money laundering rules require banks to follow strict procedures in case of certain operations (e.g. large cash deposits, etc). If this exchange is to be regulated as a bank, it will have to comply with these rules. And they have to keep accurate records of their clients and operations, which can be summoned by a court. I wonder how this ties with the anonymous nature of bitcoins...

You have to be verified (by sending in ID) to deposit/transfer large amounts of fiat money to/from bitcoin-central. The bank will flag you if you exchange large amounts of Bitcoin, just as it would if you came with a suitcase full of cash.

The term "fiat currency" is a largely meaningless distinction today, but still used mostly by Ron Paul followers and others that are essentially ignorant of modern economics. Your central point, however, is valid. The only distinction between BitCoin and US Dollars, is that the US government accepts USD to settle tax and legal obligations, and insures bank deposits denominated in USD. The federal government doesn't ban BitCoins, or any other alternative form of payment, including foreign currency. It just won't accept them or insure them. That is the extent of what "fiat" means, which isn't all that different than convenience stores that don't accept $100 bills, or vending machines that ask you to not use Canadian quarters.

The value of the dollar, just like BitCoin, is based on supply and demand, not because someone at the Federal Reserve says a dollar is worth X. That is why "fiat money" doesn't really matter in most of the discussions that use the term.

I get how gold isn't a fiat currency since it has intrinsic value, and how the USD ins't a fiat currency because it is backed by debt.

What make BTC have value?

The difference probably lies in the definition of "fiat currency", which is literally a currency because a government by fiat requires the use of that currency. The government can then usually freely manipulate the value for its own purposes. or profit of favored insiders.

It is true that the value of a BTC is tied to nothing except the demand for it, and the expected utility (not just value) of a BTC in the future. It will have a stable value only to the extent that there is a large stable market using it on a continuing basis, which is slowly emerging.

One BTC market I would use would be for downloaded content (eBooks, music, video, etc) from trusted sources. It would be possible to purchase them anonymously without leaving a permanent personal database that will be eventually sold to others.

Currently, it is necessary to use torrents or similar free sources to achieve that goal. However, a provider accepting BTC would be able to provide a much better description and organization. This would open up opportunities for smaller providers once they reach the minimal critical mass to be trusted.

European anti-money laundering rules require banks to follow strict procedures in case of certain operations (e.g. large cash deposits, etc). If this exchange is to be regulated as a bank, it will have to comply with these rules. And they have to keep accurate records of their clients and operations, which can be summoned by a court. I wonder how this ties with the anonymous nature of bitcoins...

You have to be verified (by sending in ID) to deposit/transfer large amounts of fiat money to/from bitcoin-central. The bank will flag you if you exchange large amounts of Bitcoin, just as it would if you came with a suitcase full of cash.

Disclaimer: I have an account at bitcoin-central.

Remember that with bitcoin, you don't have to make all your financial transactions through the bank. You can still conduct anonymous transactions from the bitcoin client on your computer or your smartphone, and only use your bank account for those transactions that you don't mind being recorded by the bank (e.g., paying your regular bills by converting deposited bitcoins to euros). I like the idea of having an easy way to convert BTC to other currencies, rather than going through a traditional exchange like Mt.Gox or Intersango, and I'm still hoping that Bitinstant will be able to get its BTC debit card going soon, but I won't hold my breath for that to happen, and will continue using Bitcoin Spinner on my phone and my local client to use bitcoins and pay my monthly bills with the dwindling US$ remaining in my bank account.

I get how gold isn't a fiat currency since it has intrinsic value, and how the USD ins't a fiat currency because it is backed by debt.

No, the USD is fiat money, because it "derives its value from government regulation or law." (wikipedia.org)

1. make links to wikipedia when you cite them.2. All coinage derives its value from regulation or law. By your definition, all currencies are fiat. Which is wrong.

Again, please provide a definition of "fiat currency"

All coinage (and currencies) do not derive value from regulation or law.Anyone can create coins or currency, and if things can be bought with them then they have value.An example is at fairgrounds where you get tokens (i.e. metal coins) that can buy rides. They can't be used anywhere else, they are not regulated, they do have value.

I get how gold isn't a fiat currency since it has intrinsic value, and how the USD ins't a fiat currency because it is backed by debt.

Ultimately pretty much all currency is fiat currency. The vast majority of the value of gold is fiat, not the actual value of gold.

Indeed, ironically, historically when the "gold standard" was around it was itself a fiat currency, as gold was only valuable because people believed it to be valuable - its inherent value was very small.

Quote:

2. All coinage derives its value from regulation or law. By your definition, all currencies are fiat. Which is wrong.

This isn't actually far off the mark. While fiat currency mostly is defined as being government backed, this is largely because the government is one of the few agencies capable of actually backing such things. Indeed, mostly it is defined as money without intrinsic value (or whose intrinsic value is low compared to the actual value; ironically, bitcoins really do have an intrinsic value of 0, unlike most real world fiat currencies, which at least are made out of physical objects with some possible utility). That is the actual, literal meaning, and it is descriptive - it holds value only because of fiat.

A non-fiat currency would be, for instance, coins made out of metal. You could melt the coins down for their exchange value. However, in reality almost all currencies are in fact at least partially backed by fiat and not the true value of their substance, as is the case with gold - gold coins are only valuable because people believe gold to be valuable, when the actual value of gold per unit weight is actually well below that of platinum.

All coinage (and currencies) do not derive value from regulation or law.Anyone can create coins or currency, and if things can be bought with them then they have value.An example is at fairgrounds where you get tokens (i.e. metal coins) that can buy rides. They can't be used anywhere else, they are not regulated, they do have value.

Your example is the carneys making a currency and setting an exchange rate by their regulations. Good try.

A fiat currency is a currency that has zero intrinsic value in and of itself and no guaranteed exchange opportunity.

The USD is legal tender in my country for all debts, public and private, making it a debt backed security. It's intrinsic value is based upon the debt we hold.

BTC is an illiquid instrument that loses all value the instant the vendor I work with says they don't want them anymore. If any .gov is stating that they are going to guarantee an exchange rate to the EUR for the forseeable future, I retract my statements re:fiat currency and withdraw to just calling it an illiquid market instrument of risky propositions.

All coinage (and currencies) do not derive value from regulation or law.Anyone can create coins or currency, and if things can be bought with them then they have value.An example is at fairgrounds where you get tokens (i.e. metal coins) that can buy rides. They can't be used anywhere else, they are not regulated, they do have value.

Your example is the carneys making a currency and setting an exchange rate by their regulations. Good try.

Ok, a different example. The Somali shilling, as of May this year.http://www.economist.com/node/21551492It is a currency, it was not backed, in any practical sense, by regulations or laws outside of the capital city, it was used and had value.At that time, for anyone in Somali living outside of Mogadishu, it's use was like bitcoins (only easier)

Major General Thanatos wrote:

A fiat currency is a currency that has zero intrinsic value in and of itself and no guaranteed exchange opportunity.

The USD is legal tender in my country for all debts, public and private, making it a debt backed security. It's intrinsic value is based upon the debt we hold.

BTC is an illiquid instrument that loses all value the instant the vendor I work with says they don't want them anymore. If any .gov is stating that they are going to guarantee an exchange rate to the EUR for the forseeable future, I retract my statements re:fiat currency and withdraw to just calling it an illiquid market instrument of risky propositions.

It doesn't lose all value, as long as another vendor will allow you to buy stuff, or you can find someone to exchange it into dollars. It only loses all value when there are no vendors or exchanges left.

The pseudonymous design of the Bitcoin network makes it inherently difficult to detect and prevent fraudulent transactions. And the irreversibility of Bitcoin transactions makes it hard to deal with fraud after the fact.

Bitcoin is supposed to have advantages other than anonymity, and I think a lot of fraud problems would go away if things were less anonymous. Suppose Crook dupes Alice into giving him a bitcoin. If I understand correctly, this transaction is on the public record (more so than an ordinary bank transfer), but the problem is that only Crook's numeric id/username/whatever is public.

Now if Crook could be somehow be identified, his arms could be twisted until he gives a bitcoin back to Alice (or her agent). The original, fraudulent transaction would still be on record, but so will the repayment. Just like traditional transactions, only with more rigorous bookkeeping.

So it seems the right strategy is to only ever transfer your own bitcoins to people who credibly pin their bitcoin identity to a real one. Exchanges etc. can then play an important role in automating this process, maintaining a kind of WHOIS database and vouching that ID's are kosher. If I understand correctly, this is something that people could just do, without having to somehow make a global change to the whole system -- just stop sending money to anonymous dudes over the internet.

I get how gold isn't a fiat currency since it has intrinsic value, and how the USD ins't a fiat currency because it is backed by debt.

Ultimately pretty much all currency is fiat currency. The vast majority of the value of gold is fiat, not the actual value of gold.

Indeed, ironically, historically when the "gold standard" was around it was itself a fiat currency, as gold was only valuable because people believed it to be valuable - its inherent value was very small.

Of course gold, measured in dollars, or hours-of-median wage is now much more expensive than valueable than it was when we went of the gold standard. You a right that most of gold's value is that "people beleived it to be valuable". But that wasn't because of the gold standard.

Quote:

... when the actual value of gold per unit weight is actually well below that of platinum.

Hmm, it's tricky to define "actual value". But I can think of more uses for gold than for platinum, but that's probably because I don't know much about platinum.

The pseudonymous design of the Bitcoin network makes it inherently difficult to detect and prevent fraudulent transactions. And the irreversibility of Bitcoin transactions makes it hard to deal with fraud after the fact.

Bitcoin is supposed to have advantages other than anonymity, and I think a lot of fraud problems would go away if things were less anonymous. Suppose Crook dupes Alice into giving him a bitcoin. If I understand correctly, this transaction is on the public record (more so than an ordinary bank transfer), but the problem is that only Crook's numeric id/username/whatever is public.

Now if Crook could be somehow be identified, his arms could be twisted until he gives a bitcoin back to Alice (or her agent). The original, fraudulent transaction would still be on record, but so will the repayment. Just like traditional transactions, only with more rigorous bookkeeping.

So it seems the right strategy is to only ever transfer your own bitcoins to people who credibly pin their bitcoin identity to a real one. Exchanges etc. can then play an important role in automating this process, maintaining a kind of WHOIS database and vouching that ID's are kosher. If I understand correctly, this is something that people could just do, without having to somehow make a global change to the whole system -- just stop sending money to anonymous dudes over the internet.

But the main selling point about bitcoins is that they are anonymous and that they are irrevocable.That's why they were created, that's why they are used.

If you don't need these, then you don't need bitcoins, you use dollars or francs (either cash, check, debit card or credit card), or paypal, or any of the other versions of e-currency (there are dozens).

If you want to be covered for fraud then choose who you trust to sort out the fraud (the American legal system, the French legal system, VISA, paypal, other e-currency companies) and use their currency instead.

I get how gold isn't a fiat currency since it has intrinsic value, and how the USD ins't a fiat currency because it is backed by debt.

What make BTC have value?

Gold's current value has little to do with it's "intrinsic" value and more to do with sociological value.

Just ask Indians from Central America several centuries ago. Gold use useful because it was easy to form and had other uses, but it was otherwise worthless and was not used for trading because of its relative abundance.

Money only needs a few properties to be useful:Hard to fakeEasy to use - not alwaysCan be controlled in some way - cannot be created too fastPeople must trust it - something only has value if someone thinks it has value

May be a few other properties, but any object with these properties can be used as money.

Money represents future services(someone's time). A given service has a certain amount of time based on supply and demand.

Some cultures used beads, some used boulders, some used salt(thus you get paid a "salary").

Bitcoin is supposed to have advantages other than anonymity, and I think a lot of fraud problems would go away if things were less anonymous. Suppose Crook dupes Alice into giving him a bitcoin. If I understand correctly, this transaction is on the public record (more so than an ordinary bank transfer), but the problem is that only Crook's numeric id/username/whatever is public.

Now if Crook could be somehow be identified, his arms could be twisted until he gives a bitcoin back to Alice (or her agent). The original, fraudulent transaction would still be on record, but so will the repayment. Just like traditional transactions, only with more rigorous bookkeeping.

So it seems the right strategy is to only ever transfer your own bitcoins to people who credibly pin their bitcoin identity to a real one. Exchanges etc. can then play an important role in automating this process, maintaining a kind of WHOIS database and vouching that ID's are kosher. If I understand correctly, this is something that people could just do, without having to somehow make a global change to the whole system -- just stop sending money to anonymous dudes over the internet.

Bitcoins are like cash: once you give someone cash and that person is out of sight, you can't charge-back; it's gone. So you keep your wallet away from hucksters. Now, credit cards are inherently insecure (for example, you give the person charging you credentials to deduct more money than you intend to give) so you need hacks on top of it to recover from fraud. Just treat bitcoins like cash and secure your wallet. Now, one challenge in doing so is that if you keep your wallet open on your computer, malware can get into it, so perhaps there would be value in a service that manages your wallet for you (like a bank). In this case your wallet would be just as safe as if it were in a bank.

But the main selling point about bitcoins is that they are anonymous and that they are irrevocable.That's why they were created, that's why they are used.

If you don't need these, then you don't need bitcoins, you use dollars or francs (either cash, check, debit card or credit card), or paypal, or any of the other versions of e-currency (there are dozens).

If you want to be covered for fraud then choose who you trust to sort out the fraud (the American legal system, the French legal system, VISA, paypal, other e-currency companies) and use their currency instead.

Cash is also anonymous and irrevocable. The main selling point about bitcoins is that it works like cash but it's digital: you can pay online with it. Otherwise, just use cash.

1. make links to wikipedia when you cite them.2. All coinage derives its value from regulation or law. By your definition, all currencies are fiat. Which is wrong.

1. Sorry, you asked what fiat money was, asumed you knew how to use wikipedia. Fiat money First sentence.2. No, gold standard money (when that was used) ultimately based its value on gold.2a. Which currencies are not fiat?

But if the trade between bitcoins is registered in the swarm how can it be anonymous? That's the point I don't understand

Because you can make millions of bitcoin addresses, offline, in seconds. Only by associating yourself with a Bitcoin address (e.g. by using them to buy physical goods, sent to you) do people know the address is owned by you.

But if the trade between bitcoins is registered in the swarm how can it be anonymous? That's the point I don't understand

Because you can make millions of bitcoin addresses, offline, in seconds. Only by associating yourself with a Bitcoin address (e.g. by using them to buy physical goods, sent to you) do people know the address is owned by you.

Well, each BTC client can only generate up to 100 unique addresses, but you can install multiple clients on multiple computers (and smartphones), so yes, you can theoretically generate an unlimited number of unique addresses.

There are other ways to further anonymize your bitcoin identity, e.g. the bitcoin fog service, which will accept a transaction from one user, randomly generate a new sender address, and then forward the bitcoins to the intended recipient from the new address (and charge a very tiny fee). The system encourages all kinds of creative strategies to help make bitcoins more useful than other currencies.

I personally find bitcoins to be utterly ridiculous beyond being an experiment. It needs to be at the forefront of everyone's minds that the first things one could purchase with bitcoins were drugs and weapons. These will be used to purchase humans, eventually.

This is not a cryptoanarchic currency, nor is Tor a tool of cryptoanarchism. Tor was originally made for espionage and was released to the public so that using Tor didn't necessarily blow an agent's cover. Bitcoins are similar. You will find an originating group that wanted to hide their activities badly enough to set up a system this large.

Nothing has "intrinsic value". Not even gold. We give value to gold in the same way we give value to sillicon. It's based on how rare it is, and how popular it is for exchanging it for other stuff. Dollars work the same way and Bitcoin works the same way, too. To say that Bitcoin is "less valuable" than gold because it doesn't have "material value" or because its value is "symbolic" is nonsense.

Currencies are not valuable because they have "material value". They are valuable based on how many units are available on the market, and how much exchange is done with them for other stuff.

1. If it's a lot of it (the currency), and very little exchange is done with it - then value is very low.2. If it's a little of it, but high exchange - value is very high3. If it's a lot of it, but high exchange - value is lower than in case 2. but higher than in case 1.4. If it's little of it, and exchange is little, too - value is also low.

This is pretty much how the value of the currencies is set-up. It doesn't matter if the currency itself is made out of gold, meat, paper or bits. They are all bound by the same trade-offs and properties, and that's what gives them value, not the material they are made of.

I personally find bitcoins to be utterly ridiculous beyond being an experiment. It needs to be at the forefront of everyone's minds that the first things one could purchase with bitcoins were drugs and weapons. These will be used to purchase humans, eventually.

People seem to have no problem purchasing drugs, weapons and humans with US Dollars already. I can walk into a store today and buy a gun with a credit card if I so wished, which is likely the most dangerous of the three items you mentioned.

This is just a slippery-slope argument. You may not like bitcoin, and I personally don't own any, but blaming the currency for the ethical choices people make isn't really the solution.

How does being regulated as a bank affect the "no government interference, no government backing" aspect of bitcoin?

Simple - Bitcoin is not regulated as a bank. One exchange, Bitcoin-Central, is being regulated. Bitcoin is free and open, but anyone who utilizes Bitcoin can, for themselves and their customers, also integrate with other institutions. Nobody who uses Bitcoin is forced to interact or do business with Bitcoin-Central. It's just one more option in the ecosystem.

European anti-money laundering rules require banks to follow strict procedures in case of certain operations (e.g. large cash deposits, etc). If this exchange is to be regulated as a bank, it will have to comply with these rules. And they have to keep accurate records of their clients and operations, which can be summoned by a court. I wonder how this ties with the anonymous nature of bitcoins...

Bitcoin is anonymous if you take care to use it anonymously. One particular exchange, Bitcoin-Central, will not be anonymous. It's as simple as that.

Timothy B. Lee / Timothy covers tech policy for Ars, with a particular focus on patent and copyright law, privacy, free speech, and open government. His writing has appeared in Slate, Reason, Wired, and the New York Times.